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The Truth is Leaking Out
David Haggith

FedNow* is Broke. So is Labor. Watch out for CPI.

(*Editor's Note: The FedNow Service is an instant payment service that the Federal Reserve offers to banks and credit unions to transfer funds for their customers. The Federal Reserve does not provide accounts or offer instant payment services to individual consumers and businesses.)

The truth about the Fed’s errors isn’t exactly burning up the news yet, but it is slowly leaking out in the mainstream media. Some of it must have accidentally escaped because one multi-year major error was finally presented in stark terms in a hot headline about labor burnout today, though the publisher still didn’t hold the Fed accountable for its gross misunderstanding of labor. I’m not sure the publisher even understood the huge significance of what they reported.

The truth about FedNow hasn’t broken out yet, but it may soon prove to be the case that FedNow is even more broken than I suggested last week. For now that cat’s still in the bag, but I’ve shared a hint of what may be coming. Another big bust for the Fed’s errors could burst into plain site as early as tomorrow’s CPI report. I’ll help you keep an eye on that in case the mainstream media misses it altogether.

Inflation ready to bust the Fed on the head

Beware this week’s CPI report, coming out Tuesday. As I’ve been forecasting, we are likely to see a big increase in healthcare costs that has been buried for an entire year under a massive reconciliation for past errors, which ended last month. So, this will be the first report in a year that is honest about healthcare inflation.

The end of the healthcare adjustment could be a shocker for stocks and bonds if it causes overall month-on-month inflation to rise. That could put egg on the Fed’s face, should it wake markets up to finally notice that, “Oh gee, we’ve had [as of tomorrow] four months of rising CPI on a month-to-month basis!”

The end of this reconciliation artifact could even cause headline year-on-yearinflation to rise, which is how it would finally capture some attention. That would be a harder pill for the Fed (and everyone) to swallow and simply dismiss as it hangs up in their throats. Suddenly the Fed would sound like a cat coughing up a fur ball.

We’ll find out how that goes down tomorrow. This is the news before it happens. (Unless they find some new devious way to bury rising healthcare costs or figure out a new adjustment they can slip in somewhere else to offset them. Just keep an eye out for it, as it might not be so easy to bury the effect.

Watch, too, as the Fed and feds try to explain away the rise in inflation, if it happens as I think it will, as just a “change in adjustments” without mention that the actual adjustment was to falsely make healthcare costs less inflated for the entire past year than they truly were in order to work out errors from previous years. It will actually be the end of a hugely distorting year-long adjustment. 

Let’s see if they spin it to sound like an adjustment now rather than the removal of a long misleading adjustment in the recent past. My belief is they will lie about it to whatever extent they believe they can get away with if it causes a financial jolt because the willingness of financial media to let them get away with it is shamefully and derangefully high.

Just how broke is FedNow?

One thing I did go deeper into in this weekend’s “Deeper Dive” was the severity of the breakdown of FedNow, the Federal Reserve’s new payment transaction processing system that I wrote about in one of last week’s editorials. While I won’t reveal any details publicly just yet because I was told the information was not yet verified as ready for public release, I did give some whiffs of what we may soon find out to my paid subscribers in that “Deeper Dive.”

I will share them here where the entire public can read them if the information can be verified from other sources. Just saying for now that FedNow troubles are another thing to keep an eye out for in the news because the news may have been much worse than what we read in the mainstream financial press about failed bank transactions over the last couple of weeks. If so, that fact will soon become too hard to hide.

The most important story that I want to call attention today fully confirms my longstanding view that the “tight” labor market is not at all strong, but is just badly broken. It confirms my view that many laborers are forced to hold two jobs, which means many of those “new jobs” that get reported do not represent new people being employed. They represent people who are already employed being forced to become overemployed in order to stand up to inflation and to fill staffing needs due to labor shortages.

The story soundly confirms my longtime thesis that labor is only tight due to an extremely unusual decline in available workers, not due at all to a “strong and resilient” economy or due to “strong and resilient” labor. It is due to severely lacking labor or, as I called it dead and/or dying labor:

Americans say they are being required to work an exorbitant amount of overtime to compensate for staffing shortages that have plagued the economy…. From firehouses and police stations to hospitals and manufacturing plants, workers say they are being required to work increasing overtime hours to make up for post-pandemic worker shortages — leaving them sleep-deprived, scrambling to cover child care duties, and missing birthdays, holidays and vacations.

 ‘It’s just rampant. People are tired of working all the overtime. It’s definitely causing morale issues.’

Staffing shortages have plagued the economy since the start of the pandemic.… As a result, the number of open jobs has outstripped the number of workers willing or able to fill them…. Employers say requiring overtime is a necessity — especially in health and safety positions with minimum staffing requirements — because they are unable to find enough workers to staff the shifts.

So, I’m calling it and saying the jury is in on my thesis that the Fed has the labor market entirely wrong in thinking it is strong. That is important because it means the Fed, in trying to achieve unemployment, is tightening us deep into a recession. Likewise, the federal government that boasts about the labor market and low unemployment has it entirely wrong. So do all the financial media (at least until this NBC article came out). Labor is not strong. Labor is broken! Unemployment remains low because available workers are way lower than what we are used to. (Well below the former population-growth trend line.)

That means tight labor does NOT indicate a “strong and resilient” economy, nor did it ever indicate — as it was taken to — that negative GDP in 2022 could not have been a recession on the basis that “labor was still strong.” Labor was and is simply broken to where it cannot adequately fill the demands being made on it. There is nothing “strong” or “resilient” about that at all. Labor just didn’t show up for work so the labor market has become very tight. The machine has seized up!

But several labor unions say employers should be doing more to fill the persistent vacancies, like raising wages or improving working conditions to attract newworkers, rather than placing the burden on their existing employees. In some cases, labor groups say employers are using overtime as a cost-saving measure.

What we have seen is an aggressive normalization of understaffing,” said Michelle Mahon, assistant director of nursing practice for the union National Nurses United. “The hospital industry has been capitalizing on this narrative that there’s a nursing shortage, when in fact there is not. There are a million nurses who are licensed to practice in this country who are not working in nursing largely because of understaffing and poor working conditions.”

If you pay them, they will come. It is, however, cheaper to demand the workers you already have to put in more overtime at time-and-a-half than to raise everyone’s regular wages as much as you have to in order to attract more people into the labor pool. You have to pay a lot more now than you used to because laborers have walked out of the labor force, tired of the rat race and the small piece of the profit pie they have been getting for years while top executives and shareholders have clenched the lion’s share for themselves as an entitlement.

All those new jobs are just the same people taking an additional job to get by in the face of scorching inflation due to a chronic refusal by the rich for decades to adequately share the wealth. The owners have quite simply lost labor’s interest, but some workers have been made desperate enough to take two full-time jobs. Until corporate greed at the top relaxes and a lot more money flows through the owner’s clenched fists, labor will stay very tight because of short supply.

Of course, some corporations may be determined to hold out longer, hoping desperation as the economy sinks into recession forces people back into the work force or to keep holding double jobs forever, even at wages remain dismal when compared to the huge wealth amassed by corporate executives and major shareholders. Even with recent wage gains achieved by some labor unions, real wages averaged across the economy have fallen due to inflation. With stimulus money appearing to have been exhausted, times will now become more desperate.

(News stories supporting the quotes and opinions stated in this editorial can be found in boldface among the headlines that follow, available this Monday to everyone for free:)





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